Burlington Indust v. Palmetto Spinning ( 1996 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
BURLINGTON INDUSTRIES, INC.,
Plaintiff-Appellant,
v.
No. 95-2686
PALMETTO SPINNING CORPORATION;
MARTIN COLOR-FI, INCORPORATED,
Defendants-Appellees.
Appeal from the United States District Court
for the District of South Carolina, at Greenville.
G. Ross Anderson, Jr., District Judge.
(CA-95-1467-6-3)
Argued: December 6, 1995
Decided: January 31, 1996
Before WILKINSON and WILLIAMS, Circuit Judges, and
THORNBURG, United States District Judge for the Western
District of North Carolina, sitting by designation.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: George Kermit Lyall, NELSON, MULLINS, RILEY &
SCARBOROUGH, L.L.P., Greenville, South Carolina, for Appellant.
Gregory Wilkerson Anderson, General Counsel, MARTIN COLOR-
FI, INC., Edgefield, South Carolina, for Appellees. ON BRIEF:
A.M. Quattlebaum, Jr., NELSON, MULLINS, RILEY & SCARBOR-
OUGH, L.L.P., Greenville, South Carolina, for Appellant.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Burlington Industries, Inc., appeals from the denial of its request
for a preliminary injunction in its trade secret misappropriation suit
against Palmetto Spinning Corp. and Martin Color-Fi, Inc. For the
reasons stated below, we affirm the decision of the district court.
I.
From 1989 to 1991, Burlington Industries, Inc., developed a
machine, known as the Spectra machine, for manufacturing space
dyed yarn to be used in area rugs. Burlington considered the Spectra
machine to be a trade secret, and treated it as such. In late 1991, three
former employees of Burlington formed a corporation known as
Bobby Vinson & Associates, Inc. (BVA), which began manufacturing
space dyed yarn machines in 1992. While a Burlington employee,
Bobby Vinson had participated in the design and development of the
Spectra process.
In early May 1993, Burlington notified Vinson of its trade secret
claim related to the Spectra machine. On April 26, 1993, Palmetto
ordered one of the BVA machines, and this machine was delivered to
Palmetto's South Carolina facility on June 25, 1993. 1
On August 25, 1993, Burlington filed suit in the U. S. District
Court for the Eastern District of Arkansas against Vinson, BVA, and
others not a party to this litigation, alleging misappropriation of trade
secrets. Neither Palmetto nor Color-Fi was named a party to this
action.
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1 Martin Color-Fi, Inc. purchased Palmetto in June 1994, and the
machine at issue in this case was part of this purchase.
2
Vinson, in his individual capacity,2 entered into a Consent Decree,
admitting that the machines built and sold by BVA were substantially
identical to the Spectra machine, that he learned of the technology for
such machines while employed with Burlington, and that he con-
sented to be permanently enjoined from the further use or sale of such
technology or machines.
The U.S. District Court for the Eastern District of Arkansas entered
an order on September 22, 1994, holding that the process used in the
Spectra machine was a trade secret and that BVA's machines consti-
tuted the misappropriation of Burlington's trade secret. The court also
enjoined the defendant parties from further use of the trade secret.
On May 11, 1995, Burlington commenced the present action
against Palmetto and Color-Fi in the U. S. District Court for the Dis-
trict of South Carolina. The action alleges the misappropriation of
trade secrets in violation of South Carolina's Uniform Trade Secrets
Act, S.C. Code Ann. § 39-8-1 et seq., seeks a preliminary injunction,
and asks for an accounting. The district court denied the motion for
a preliminary injunction, and subsequently denied Burlington's
motion for reconsideration. By written order, the district court also
determined that the appellees were not estopped from litigating
whether their machine is a trade secret of Burlington, and that there
was a question of fact as to whether the machine owned by Palmetto
was substantially similar to any machine produced by United Textile
Machine Company (UTMC), successor corporation to the three for-
mer Burlington employees' interests. Burlington then appealed to this
court.
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2 Contrary to the appellees' assertion, this Consent Order was entered
into by Vinson individually, and not by BVA. BVA presumably was not
addressed in the Arkansas court's order of September 22, 1994, for the
reason that BVA no longer existed at that time, not because it had
entered the March 22, 1994, Consent Order along with Vinson. Instead,
the only corporate defendant addressed by the Arkansas court's order of
September 22, 1994, was United Textile Machine Company, the succes-
sor company to BVA.
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II.
Under S.C. Code Ann. § 39-8-2(a), the actual or threatened misap-
propriation of a trade secret may be enjoined. As a prerequisite to
obtaining an injunction under this section, Burlington must demon-
strate that the machine at issue in this case is a Burlington trade
secret.
A.
Burlington first asserts that Palmetto and Color-Fi are collaterally
estopped from arguing that Palmetto's machine is not a Burlington
trade secret by virtue of the September 22, 1994, order of the Arkan-
sas court. Under the doctrine of collateral estoppel, once a final judg-
ment on the merits has been reached in a prior claim, the relitigation
of those issues actually and necessarily litigated and determined in the
first suit are precluded as to the parties and their privies in any subse-
quent action based upon a different claim. Richburg v. Baughman,
351 S.E.2d 164, 166 (S.C. 1986). In the present case, it is clear that
neither Palmetto nor Color-Fi was a party to the Arkansas litigation.
Instead, the Court must focus upon whether Palmetto or Color-Fi was
in privity with BVA/UTMC, which was a party to the Arkansas litiga-
tion.
"Privity," when applied to a judgment or decree, means one so
identified with another that he represents the same legal right.
Richburg, 351 S.E.2d at 166. However, as this Court has recognized,
"privity" is merely a word used to say that the relationship between
the one who is a party on the record and another who is not is close
enough to include that other within a previous judgment's preclusive
effect. United States v. Manning Coal Corp., 977 F.2d 117, 121 (4th
Cir. 1992). Each case depends on its particular facts. H.G. Hall Con-
str. Co. v. J.E.P. Enterprises, 321 S.E.2d 267, 271 (S.C. App. 1984).
Privity in the context of res judicata or collateral estoppel does not
embrace relationships between persons or entities, but rather deals
with a person's relationship to the subject matter of the litigation.
Richburg, 351 S.E.2d at 166. Under this rule,"privity" means that the
respective parties have a mutual or successive relationship to the same
rights of property. Wyndham v. Lewis, 354 S.E.2d 578, 579 (S.C.
4
App. 1987); see also 1B James W. Moore et al., Moore's Federal
Practice ¶ 0.411[1] (2d ed. 1995). In the present case, our inquiry
concerns whether Palmetto's successive relationship to the machine
it purchased from BVA is a sufficient basis for finding that Palmetto
was in privity with BVA and UTMC, and should be bound by the
result of the Arkansas litigation.
While this Court declines to adopt a specific rule stating that a
judgment rendered against the predecessor in a successive relation-
ship is conclusive of the rights of the successor only when the transfer
takes place after the commencement of the suit against the predeces-
sor, the Court places great weight on the fact that Palmetto's machine
was ordered and delivered before Burlington initiated the Arkansas
litigation against BVA and UTMC. See generally Johnson & Johnson
v. Coopervision, Inc., 720 F. Supp. 1116, 1124 (D. Del. 1989);
Teleprompter Corp. v. Polinsky, 447 F. Supp. 53, 56 n.5 (S.D.N.Y.
1977); MPL, Inc. v. Cook, 90 F.R.D. 570, 572-73 (N.D. Ill. 1981);
Buie v. Waters, 74 S.E.2d 883, 885 (Ga. 1953); Smith v. Smith, 431
S.E.2d 196, 198 (N.C. 1993); Wolverton v. Holcomb, 329 S.E.2d 885,
888 (W. Va. 1985); Moore's Federal Practice¶ 0.411[1]. While Bur-
lington asserts that Palmetto knew it was about to sue BVA, this is
an insufficient basis for finding that Palmetto was in privity with
BVA or UTMC under the facts of this case. It is also worthy of note
that Burlington did not file the present suit until almost three years
after delivery of the BVA machine to Palmetto.
We find that Palmetto and Color-Fi are not collaterally estopped
from litigating whether their machine is a Burlington trade secret.
B.
Second, Burlington argues that, in the absence of estoppel, the evi-
dence on the record nonetheless demonstrates that Palmetto's
machine was a Burlington trade secret. However, after reviewing the
record, this Court holds that the district court was not in error in deter-
mining that there was insufficient evidence to conclude at such an
early stage in the litigation that Palmetto's machine was a trade secret
as defined in S.C. Code Ann. § 39-8-1(4). Indeed, in argument before
this Court, it was clear that the issue is seriously contested by appel-
lees.
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III.
Finally, we address Burlington's contention that it is entitled to a
preliminary injunction.
Entitlement to injunctive relief is governed by Rule 65(a) of the
Federal Rules of Civil Procedure.
In this circuit, determining whether a preliminary injunction
should be granted requires the consideration of four factors.
These factors are: 1) the likelihood of irreparable harm to
the plaintiff if the preliminary injunction is not granted; 2)
the likelihood of harm to the defendant if the preliminary
injunction is granted; 3) the likelihood that plaintiff will suc-
ceed on the merits; and 4) the public interest. Blackwelder
Furniture Co. v. Seilig Manufacturing Co., Inc., 550 F.2d
189, 195-96 (4th Cir. 1977). These factors are not, however,
all weighted equally. The "balance of hardships" reached by
comparing the relevant harms to the plaintiff and defendant
is the most important determination, dictating, for example,
how strong a likelihood of success showing the plaintiff
must make. See Rum Creek Coal Sales, Inc. v. Caperton,
926 F.2d 353, 359 (4th Cir. 1991). Additionally, while the
factors articulated in Blackwelder guide the district court's
judgment on a preliminary injunction motion, the decision
to grant or deny relief lies within that court's sound discre-
tion and will not be set aside absent an abuse of discretion.
Id. at 358.
Hughes Network Systems v. Interdigital Com. Corp ., 17 F.3d 691, 693
(4th Cir. 1994).
The first two factors are the most important. Only if the first two
factors "`tip[ ] decidedly' in favor of the plaintiff" is it entitled to
injunctive relief. Direx Israel, Ltd. v. Breakthrough Medical Corp.,
952 F.2d 802, 813 (4th Cir. 1991) (citations omitted).
It is clear that the district court properly considered the factors set
forth in Hughes, weighed the likelihood of irreparable harm to Bur-
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lington against the likelihood of harm to Palmetto and Color-Fi, and
determined that Burlington had failed to show likelihood of irrepara-
ble harm or, in fact, harm at all. The court further found that the issu-
ance of an injunction would work significant harm on the appellees.
As was appropriate, the court also addressed the appellant's likeli-
hood of success on the merits and observed that any loss by Burling-
ton attributable to Palmetto and Color-Fi could be readily ascertained
as money damages. A review of the record provides full evidentiary
support for the district court's ruling. Therefore, the decision of the
district court is affirmed.
During the appeal, Burlington moved to seal the appellate record.
At oral argument, the appellees did not oppose that motion which,
therefore, is granted and the appellate record is sealed.
AFFIRMED
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